Mortgage Delinquencies, Foreclosures Up; ARMs In Trouble

The Mortgage Metrics Report from the Office of the Comptroller of the Currency and Office of Thrift Supervision for the second quarter of this year shows that difficult economic conditions resulted in higher rates of mortgage delinquencies and foreclosures in process.

 
Key findings of the report include:
-          The percentage of current and performing mortgages fell by 1.4 percent to 88.6 percent of the 34 million loans in the portfolios of reporting servicers.
-          Economic factors continued to adversely affect credit quality, with delinquencies up across all risk categories—prime, Alt-A, and subprime.  The percentage of serious delinquencies increased to 5.3 percent of all loans in the portfolio.
-          Servicers implemented almost 440,000 new home retention actions in the second quarter; these actions continued to increase more quickly than new foreclosures. 
-          Total foreclosures in process continued to grow and reached 993,000 mortgages, or about 2.9 percent of the portfolio.
-          Servicers changed more than one feature of mortgages in more than 75 percent of modifications they made.  The most common changes were reducing interest rates, capitalizing missed fees and payments, and extending the length of the loans.
 
It should be emphasized that the report points out that the risks and geographical concentration of Payment Option Adjustable Rate Mortgages ("ARMs"), which allow borrowers to choose from a variety of payment options each month, including payments that reduce principal, cover interest only, or result in unpaid interest being added to the balance of the loan, resulting in an increased amount owed, caused them to perform significantly worse than the overall portfolio. 
 
In the second quarter, 15.2 percent of the more than 900,000 Payment Option ARMs in the portfolio were seriously delinquent, compared with 5.3 percent of all mortgages, and 10 percent were in the process of foreclosure, more than triple the 2.9 percent rate for all mortgages.
 
The report covers 34 million loans totaling about $6 trillion in principal balances and representing about 64 percent of all first lien mortgages in the country.